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Three trends are currently driving the global electricity sector: decarbonization, decentralization and differentiation. Utilities are making significant contributions to mitigate carbon emissions, while a technology revolution is …

ECB maintains rate policy

The European Central Bank (ECB) has decided to keep interest rates on hold, the seventh month that it has opted to keep its monetary policy unchanged.

The decision, made today by the bank’s governing council, means that the ECB’s principal interest rate – the rate used for the main refinancing operations – remains at 1%, a historic low. The rate for the ECB’s marginal lending facility is 1.75%. For its deposit facility, the rate is 0.25%.

The ECB also announced that over the coming months it will wind down some of the measures it has put in place to fight the financial crisis. It said that an issuance of one-year loans to the banking sector on 16 December would be the last of its kind. It added that the last issuance of six-month loans would take place on 31 March. Before the crisis, the ECB loaned money to banks for a maximum of three months.

The bank said that despite scaling back the duration of its loans it would continue to offer unlimited amounts of liquidity to the banking sector. Prior to the crisis, the bank pre-determined how much money it would release each time it issued loans. It stopped this practice in October 2008 because of the affect of the financial crisis on inter-bank lending.

“The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past,” Jean Claude Trichet, the ECB’s president, said.

He said that phasing out of the temporary measures would be “progressive” and “timely”.

Trichet reiterated his recent calls for member states to draw up credible strategies for withdrawing fiscal stimulus measures, and consolidating their budget deficits. He said that consolidation plans must “focus on structural expenditure reforms, not least with a view to coping with the budgetary burden associated with an ageing population”.

Questioned on comments last month by Dominique Strauss-Kahn, director-general of the International Monetary Fund, that the dangers of withdrawing fiscal stimulus measures too early outweighed those of withdrawing them too late, Trichet said that “one should not have an ex ante bias” as to where the greater risk lay.

Trichet also responded to concerns about the size of Greece’s budget deficit. He said he had “confidence” that the Greek government would take “appropriate” decisions to bring its public finances under control.

Finance ministers from the EU member states yesterday placed Greece under heightened surveillance because of its failure to control its budget deficit. The Greek government estimates that its deficit for 2009 will be 12.5%, one of the highest in the EU and four times higher than the 3% ceiling allowed under the EU’s stability and growth pact.

“Taking into account the gravity of the situation, I have confidence that the government of Greece will take the appropriate decisions [to improve the fiscal situation],” Trichet said.